Purchases of goods and services over the internet have transformed from what was once a novel way of conducting a business transaction to a now well-known mainstream method of acquiring those goods and services. These “on-line” transactions include making a selection from an offering at a merchant's website, entering payment information, and concluding the transaction by authorizing the merchant to receive funds. Presently, there are several methods by which a consumer can electronically pay for the purchases made on the Internet, which are, namely, credit cards, debit cards, direct debit, and electronic funds transfers. Each of these methods, however, has its own advantages and disadvantages.
When making an on-line purchase with a credit card, the consumer provides the merchant with credit card information sufficient to process the transaction. The information can include the credit card number, a security code referred to as CVV2, the card holder's address, the card's expiration date, and more. The amount of the purchase is then charged to the associated credit card account. However, credit cards are susceptible to fraud, especially when used over the Internet, because the physical card is never presented to the merchant, allowing anyone with the credit-card information to initiate a transaction. In addition, a verification to check whether the credit card owner has in fact authorized the purchase is typically not performed during on-line purchases. This lack of security makes many purchasers reluctant to use a credit card over the Internet. In addition, credit cards have a relatively high cost to the merchant that includes a processing fee of 1.4% and up. Credit cards also present a potentially high cost to the consumer, as credit card issuer's charge interest on any balance that is not paid by the end of a billing cycle.
Debit cards can be used to make purchases on-line. Debit cards are really “signature” based check cards that are associated with a bank account. They are analogous to a check with insufficient funds (NSF) and overdraft protection. A consumer can initiate the on-line purchase by supplying his or her account number and generally one other piece of information, such as a three or four digit number stamped on the physical card, and the amount of the purchase is debited directly from the consumer's account. One major disadvantage of debit cards, from a consumer's point of view, is the inability to immediately reverse or repudiate the transaction. Once the funds are withdrawn from the consumer's account, he or she will be forced to do without those funds during any dispute procedures. Interception of the account number and other piece of information, such as the three or four digit number stamped on the physical card allows a third party direct access to a consumer's funds. This possibility makes many consumers reluctant to use debit cards over the internet. In addition, debit cards have a relatively high cost to the merchant that includes a processing fee of 1.4% and up. The debit or check cards have the same disadvantages as credit card since they operate much the same—same networks and same authentication. Therefore security is a major drawback. Also, fees for overdrafts are high.
Fund transfer methods of payment for on-line purchases are also known. Fund transfer methods include payment employing an intermediate account whereby a consumer transfers funds from his personal financial-institution account into the intermediate account and then uses the funds in the intermediate account in making an on-line purchase. These systems include electronic wallets (or ewallets), internet pay anyone (IPA) accounts and virtual or physical pre-paid credit cards. When paying for an on-line purchase from an intermediate account the consumer may be required to provide the merchant with information identifying his intermediate account such as a user identifier (User ID) and a password.
If the consumer does not have sufficient funds in the intermediate account, the on-line transaction will be denied. Funding an intermediate account requires the consumer to plan ahead; it may take one to five business days before a consumer who has transferred funds into his intermediate account to access those funds. During this time, the funds are debited from the consumer's personal financial-institution account and the consumer disadvantageously does not have access to these funds. On the other side, the intermediate account provider will place a hold on deposited funds until they are cleared. A consumer who does not have enough funds in his intermediate account to pay for his on-line purchase will have to wait for the funds to clear before the can complete his purchase.
Consumer pre-authorized direct debit methods are known and typically used for on-line payment of bills, such as utility bills, and for recurring payments. However, a merchant needs prior standing authority from the consumer. Without this explicit authority no third parties, such as merchants, are able to access funds from the customer. Such an arrangement is tedious and inconvenient to set up. In any event, customers are extremely reluctant to give authority to a third party to access their funds and there are concerns about fraud and difficulty in canceling such authority.
Customer initiated electronic checks (echecks) are known and can be used for on-line purchases. Typically the customer provides his routing and account number and the merchant or processor debits funds from the consumer's account through the check clearing network. The problems with this method include the lack of any real time verification of account ownership, authorization, or sufficient funds, and a lack of a real time settlement system. In addition, there is no built in identity verification or notification of transaction success.
Therefore a need exists to overcome the problems with the prior art as discussed above.